MSN Hotmail has substantially revised its email service to
combat spam, tighten security, and circulate its 40 million members to other
parts of the Microsoft Network. Microsoft's MSN Hotmail has long been considered
the 800-pound gorilla of the free email market, and it said today that it has
bulked up even more in amassing more than 40 million members. But Microsoft,
like other free email providers, has been hard-pressed to translate those
millions of people into millions of dollars, instead pouring resources into
keeping the service running under ever-growing demand.

It hasn't been an easy task, and critics have complained that
Hotmail and its competitors are providing inadequate service. The point of
offering free email for Hotmail is to circulate users to other parts of the
Microsoft Network where they might spend money. With this week's upgrade, the
site is working harder to do just that, feeding users an MSN Web search bar on
selected pages along with links to MSN e-commerce services. Hotmail users are
offered items like airline tickets and music, software downloads, yellow pages
listings, and gaming sites.

In other areas, Hotmail amended its terms of service to
penalize senders of unsolicited mail, or spam, with a $5 per message fine.
"This clause serves as a deterrent to keep our service spam-free and will
make it easier for us to pursue spammers," a Hotmail spokesperson said.

The amended terms also spell out Hotmail's new policy
requiring the use of cookies, files placed on users' hard drives to authenticate
their identities. That requirement, reported last month, plugs a security hole
that made users of public or shared Web terminals vulnerable to privacy
breaches. Another security measure for those who share computers shields
messages viewed by one user from others. Users can check a box on the log-in
screen to make sure message pages expire from the cache when that user logs out.
A second feature announced today that was previously reported is
"stationery" options that let users add graphics, fonts, and colors to
messages.

Hotmail announced that it has surpassed 40 million registered
accounts, presumably making it the world's largest email service. Competitor
Yahoo Mail does not disclose its membership numbers. Hotmail claimed 30 million
members in December. With this week's series of upgrades, the Hotmail address
book offers mapping and driving instructions, powered by Microsoft's MSN Expedia
travel site. The service also added versions in French, German, and Japanese.

Microsoft chief executive Bill Gates has said he plans to add
more desktop applications to MSN through Hotmail, such as file storage and
calendaring. Hotmail also said its founder and general manager, Sabeer Bhatia,
has left the firm to pursue other interests. His replacement has not been named.